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Volcker Rule
ICBA Backs Bill to Protect Community Banks from Volcker Rule
ICBA said it strongly supports new legislation that would protect community banks from the Volcker Rule. The ICBA-advocated legislation would prohibit the Volcker Rule from requiring banks to divest their holdings of collateralized debt obligations backed by trust-preferred securities issued before Dec. 10, 2013.

The Fairness for Community Job Creators Act (H.R. 3819) was introduced by Subcommittee on Financial Institutions and Consumer Credit Chairman Shelley Moore Capito (R-W.Va.) and House Financial Services Committee Chairman Jeb Hensarling (R-Texas). In a national news release and a letter to the lawmakers, ICBA said it strongly supports the legislation to prevent the rule from negatively affecting economic stability in local communities.

The Volcker Rule requires, in certain instances, that banks divest their holdings of CDO TruPS and write down these investments under “other than temporary impairment” accounting rules. For some banks, writing down these securities at “fire sale” prices could result in a permanent loss of capital.

ICBA has repeatedly called for the banking agencies to address the issue and has called on Congress to seek a legislative fix since regulators released the rule on Dec. 10. The association also provided input on the Capito-Hensarling bill and is working closely with Senate offices to advance a Volcker Rule fix in that chamber this week. Read ICBA Release. Read ICBA Letter.

ICBA to Congress: Too-Big-To-Fail Causes Community Bank Reg Burdens
ICBA told Congress that government subsidies for a small number of too-big-to-fail firms increase systemic risk and pose a direct threat to the U.S. economy and taxpayers. In a statement for the record for yesterday’s Senate Banking Subcommittee on Financial Institutions and Consumer Protection hearing, ICBA noted that too-big-to-fail subsidies have also contributed to greater regulatory burdens on community banks.

ICBA wrote that the Volcker Rule is an example of how rules designed to mitigate risk on Wall Street can sweep in community banks. The association noted that a provision of the final Volcker Rule requires all banks to divest their holdings of collateralized debt obligations backed by trust-preferred securities, which could result in community bank write-downs based on fire sale prices. ICBA urged the committee to promptly take up legislation to exempt community banks from this provision.

At the hearing, which focused on a Government Accountability Office report on government support for bank holding companies, ICBA noted that government-subsidized industry concentration continues unabated. The association cited an SNL Financial report that found that the five largest U.S. banks control 44.2 percent of the industry’s assets, up from 9.7 percent in 1990.

ICBA expressed its support for the Terminating Bailouts for Taxpayer Fairness (TBTF) Act (S. 798), introduced by Sens. Sherrod Brown (D-Ohio) and David Vitter (R-La.), which would require the largest and riskiest banks to hold more leverage equity capital. The association also called on Congress to consider how ICBA’s Plan for Prosperity and the CLEAR Relief Act (S. 1349) would help offset community banks’ growing regulatory burden. Read ICBA Statement. Read ICBA Release.

FDIC Responds to ICBA Concerns on De Novo Policy
The FDIC recently responded to a letter from ICBA and the American Association of Bank Directors expressing concern that the agency has approved just one new bank charter since 2011. In a December joint letter, the associations wrote that the FDIC’s policy on de novo banks adopted in 2009 makes forming new banks prohibitive.

The associations noted that even in the depths of the financial crisis of the 1980s, when 1,800 banks and savings institutions failed, an average of 196 de novos were formed from 1984 through 1992. In their letter, ICBA and AABD called on the agency to review its policies and procedures on de novo applications.

In a response, FDIC Director of Risk Management Supervision Doreen Eberley wrote that de novo banks continue to over-represent bank failures. The regulator noted that de novo institutions comprised 16 percent of bank failures from 2008 to Oct. 24, 2013. Further, institutions operating for less than seven years as of 2008 failed at a rate of 12 percent during the financial crisis, more than twice the 5 percent failure rate of established institutions.

Eberley also wrote that de novo formation tends to follow recessionary periods and that the FDIC welcomes proposals to organize de novo community banks. She reiterated the agency’s views regarding the importance of community banking and proposed further discussions with the associations on the issue.

The FDIC policy in question extends the agency’s business-plan requirements from three to seven years for state nonmember bank applicants. It also requires applicants to raise capital prior to opening that would be sufficient to maintain its leverage ratio at a minimum of 8 percent for the full seven years based on the applicant’s pro forma financial statements, a requirement that ICBA and AABD believe is an excessive barrier to entry.

ICBA and AABD suggested in their letter alternative policies for de novo banks. They wrote that a more flexible supervisory process that is tailored to the risk profile and business plan of de novo applicants would be better than the current one-size-fits-all policy. ICBA intends to pursue further dialogue on this issue with the FDIC until the agency adopts a more flexible approach towards de novos. Read FDIC Letter. Read ICBA-AABD Letter.

ICBA NewsWatch Today is sponsored by CNA:
ICBA Member Milestones, brought to you by CNA, recognizes community bank anniversaries and milestones in the January issue of ICBA Independent Banker magazine. CNA understands it takes more than a strong balance sheet to run a successful bank. It takes commitment to the community, dedication to service and flexibility to meet the needs of clients. For more than 100 years, CNA's professionals have worked to build strong relationships and solid business insurance solutions that meet the needs of their clients. For more information on CNA’s programs, visit www.cna.com/communitybanks.

Cordray: CFPB Open to Additional Community Bank QM Exemptions
The Consumer Financial Protection Bureau will consider expanding community bank exemptions from its ability-to-repay and qualified mortgage rule after it takes effect tomorrow, according to remarks from CFPB Director Richard Cordray. Cordray said at a forum this week that regulators will examine how the rules are working for smaller lenders and whether they should make adjustments.

“We will be sensitive to considering whether we got the line right, whether we should put it in a different place,” Cordray said, American Banker reported. “And if we see something that's dramatically out of balance with what we expect in this market, we want to hear it from the Realtors, we want to hear it from the community bankers, the credit unions, anybody who has a line of sight on this market in order to think about what that means.”

ICBA has been working with the CFPB and its Community Bank Advisory Council on this issue. Tomorrow is the compliance deadline for several CFPB mortgage rules, including the QM rule. ICBA recently posted new reference charts on the QM rule and offers additional resources on its Mortgage Rules Resource Page.

Additional information and compliance resources on the new mortgage rules can be found on the CFPB’s Regulatory Implementation webpage. Additionally, community bankers can submit questions to the CFPB at CFPB_reginquiries@cfpb.gov or 202-435-7700.

In the News
ICBA Efforts for Community Bank Fed Voice Make Headlines
ICBA’s efforts to ensure new appointments to the Federal Reserve Board have community banking experience made news. Quoting ICBA President and CEO Cam Fine, Bloomberg reported that the association is encouraging the White House and Congress to ensure appointments to replace outgoing board members have a community banking background.

The report noted that until recently the Fed had two governors who had experience with community banks. Career community banker Elizabeth Duke retired in August, and former Maryland banking regulator Sarah Bloom Raskin is awaiting confirmation as deputy Treasury secretary.

President Barack Obama hasn’t announced appointments to replace Duke and Raskin and to succeed Federal Reserve Board Chairman Janet Yellen as vice chairman.

FHFA Delays Increase in Guarantee Fees, Plans Review
The Federal Housing Finance Agency directed Fannie Mae and Freddie Mac to delay the implementation of changes to base guarantee fees announced by the agency last month.

In December, the FHFA announced plans to base g-fees for all mortgages by 10 basis points, update the upfront g-fee grid and eliminate the upfront 25-basis-point adverse-market fee that has been assessed on all mortgages purchased by Fannie Mae and Freddie Mac since 2008. The changes were slated to take effect in March and April.

FHFA Director Mel Watt, who was sworn in on Monday, said that he intends to conduct a thorough evaluation of the proposed changes and their likely impact. He said the agency would give at least 120 days’ notice after completing the evaluation before implementing any changes.

Fannie Mae Launches Appraiser Quality Monitoring Webpage
Fannie Mae launched a new webpage with information about the recently implemented Appraiser Quality Monitoring process. The page includes frequently asked questions and a link to the AQM list identifying appraisers whose appraisals will be subject to 100 percent review by Fannie Mae or whose appraisals are no longer accepted by Fannie Mae.

The AQM list is protected content, and approved Fannie Mae sellers-servicers may set up access through Technology Manager. The AQM process was described in Lender Letter LL-2013-10, which reminded lenders of Fannie Mae’s appraiser selection requirements, highlighted several data quality issues and described the AQM process. Visit the AQM Webpage.

Private-Sector Employment Rises 238K in December
Private-sector employment increased by 238,000 jobs in December, according to the latest ADP National Employment Report. Small businesses added 108,000 jobs, while medium-sized and large businesses added 59,000 and 71,000 jobs, respectively. This followed a 229,000 overall increase in November.

Consumer Credit Rises 4.8 Percent in November
Consumer credit increased at a seasonally adjusted annual rate of 4.8 percent in November, according to the Federal Reserve. Revolving credit, which includes credit card spending, increased at an annual rate of 0.6 percent. Non-revolving credit, such as auto and student loans, increased at an annual rate of 6.4 percent.

Take This Week’s Quick Poll
Take this week’s Quick Poll on the Target payment-card breach, and view results from the previous poll on arbitration clauses. View the Archive.

ICBA 2014 Investment Portfolio Kickoff Audio Call Next Week
Join Jim Reber of ICBA Securities for the 2014 Investment Portfolio Kickoff audio conference scheduled for 11 a.m. (Eastern time) Tuesday, Jan. 14. As investment portfolios of community banks remain much larger than in the past, the consequences of an underperforming asset class are magnified. The audio call will assess the lay of the land for community bank–suitable investments and will discuss several suggestions for securities that may be poised to perform well in the coming year. Register Today.

Products and Services
Free Webinar: Best Strategies to Reposition for Franchise Growth
Bank Intelligence Solutions from Fiserv, an ICBA Preferred Service Provider, is hosting a webinar on Thursday, Jan. 23, titled “Repositioning for Franchise Growth in 2014—Identifying Your Best Strategies.” Following years of heavy focus on expense management and overwhelming regulatory pressures, community banks must pivot priorities to repositioning for franchise growth—ultimately leading to revenue growth. This webinar will outline a practical methodology for identifying the specific growth strategies which will be most successful for a given institution. Register Now.

FS-ISAC Webinar Covers New Social Media Guidance
The Financial Services Information and Sharing Analysis Center is hosting a webinar next week on new social media guidance for financial institutions. The webinar, scheduled for 1 p.m. (Eastern time) Wednesday, Jan. 15, will cover how to successfully plan for the new Federal Financial Institutions Examination Council guidance.

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